The Chinese share market continued to tumble in July despite efforts by the Chinese government to prop up the market through direct share purchases. The Shanghai Composite ending the month down 14.3%. The deterioration in Chinese manufacturing in July underscored economic weakening in China and a danger that the 2015 growth target might be out of reach. This, along with the circumstances surrounding the Greek referendum and efforts to reach a lasting bailout deal spilled over to impact markets globally.
After a rocky start, the US equity market ended up in local currency terms. Early in the month, the market was impacted by global events, and although investors eventually refocused on the strength of the US economy to see equities rally into earnings season, the Chinese sell-off impacted US markets in the latter half of the month.
European markets were rocked by the Greek situation at the beginning of the month. Markets generally recovered following the announcement of an agreement to resolve Greece’s debt woes to keep financing within the Eurozone on July 13. The next pressure point will be August 20, when the country is due to make a payment of 3.5bn Euros to the European Central Bank.
Japanese equities appeared somewhat more resilient to the moves in China, with the Nikkei 225 gaining 1.7% over the month, outperforming other Asian developed markets. The situation in China severely impacted some Asian markets with Singapore, Hong Kong, Korea and Taiwan all considerably down over the month.
Oil fell significantly in July on speculation that increased OPEC supplies and threats to demand in China will prolong a global oversupply. Prices also fell more broadly across raw materials largely due to concerns that slower economic growth in China will dampen demand.
The investment returns of the major markets for one and three months to 31 July 2015 are summarised below.
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
*Estimate at 10/8/2015
The MSCI World ex-Australia Index (hedged into AUD) rose by 2.8% over the month. The Australian Dollar depreciated strongly in July, which resulted in a return of 6.6% (in AUD) on an unhedged basis. Emerging markets unhedged in AUD returned -2.5%, significantly underperforming developed markets.
The Australian share market as measured by the S&P/ASX300 Index rose 4.3% over the month. Small Caps stocks rose by 1.6%, underperforming Large Caps stocks (4.4%). Healthcare (9.5%) and Consumer Staples (7.5%) stocks outperformed, while Materials (-1.4%) was the only sector in the red.
Bonds provided comfortably positive returns for the month of July, largely offsetting the negative returns from the previous two months.